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Swiss Residents Pay $5.2 Billion Over Decade of Amnesty Program

Posted on Feb. 5, 2020

Swiss residents paid over CHF 5 billion (around $5.2 billion) in income and wealth taxes over 10 years on approximately CHF 50 billion of previously undisclosed assets, according to a report by a Zurich-based newspaper. 

In 2010 the Swiss government implemented the amnesty program that resulted in the asset disclosures and tax payments reported by the Neue Zürcher Zeitung newspaper February 3. Assets totaling around CHF 9.6 billion were disclosed by residents of the canton of Zurich over the last decade, while their counterparts in Geneva reported approximately CHF 9.2 billion of assets during the same period. The disclosures included bank accounts, securities, works of art, and life insurance policies, the newspaper said. 

“Last year, we learned that some 24,000 Geneva residents filed voluntary disclosures for some CHF 6 billion of assets and over CHF 600 million of income,” Thierry Boitelle, a tax partner with Bonnard Lawson in Geneva, said in an email. “That is a staggering 5 percent of the population of Geneva. The canton raked in over CHF 700 million of additional taxes as a result.”

Boitelle said Switzerland received automatic exchanges of information on approximately 2.4 million foreign bank accounts. “That’s quite a lot for a nation of 8 million,” he said. “But Switzerland is quite international. Many Swiss have real estate abroad, and some 25 percent of the population [are] foreigners. The canton of Zurich had previously announced having received information about 1 million foreign accounts, which raised my eyebrows, as the canton has ‘only’ 1.5 million inhabitants.” 

Frédéric Neukomm, a tax partner with Lenz & Staehelin in Geneva, said that while no penalties are payable for voluntary disclosures made under the amnesty, the exemption hinges on whether the assets were covered by the OECD’s common reporting standard (CRS). Disclosure "can typically be considered voluntary only if made prior to September of the year that a CRS reporting is being filed,” Neukomm said. 

In 2015 the Swiss parliament approved the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. That same year, Switzerland signed a protocol to the 2004 EU-Switzerland savings directive agreement, replacing the agreement's information exchange provisions with the CRS. (2009 notes to the agreement.)  The protocol required the automatic exchange of financial information beginning in 2018. 

Michael Angehrn, a tax lawyer with Rihm Attorneys in Zurich, said an individual can make only one penalty-free disclosure of assets during his or her lifetime. He said penalties are payable if the tax authorities detect undisclosed assets before a resident reports them. “In this case, the regular penalty is 100 percent of the back tax,” he said. “But depending on the situation — [the degree] of fault — it can be reduced to 33 percent or increase to 300 percent . . . depending on the canton.” 

Penalty amounts are decided by the tax authorities based on “all facts and circumstances" of a holding, Neukomm said. A complex structure with a lot of assets that is "used for years and years would have the effect of increasing the penalty, as compared to a case where I voluntarily disclose a bank account received from my late uncle,” he said. 

Interest charges on payments of back taxes typically run between 2 percent and 4 percent, depending on the canton, regardless whether the disclosure is voluntary, Neukomm said.

Boitelle said late-payment interest on back taxes can run as high as 5 percent. “Interestingly enough, such interest is tax deductible,” he said. 

Residents who fail to report interest income received from Swiss financial institutions are not allowed a refund of the 35 percent tax withheld by the banks if they later disclose the asset and report the related income under the amnesty, Angehrn said. (Swiss banks do not provide tax authorities with the identities of the parties from whom tax is withheld and remitted.) “The asset and its [related] income generally have to be disclosed in the . . . tax return that has to be filed every year,” he said. “Otherwise, you generally lose the right of refund.” 

Most of the back taxes owed by Swiss residents pertain to the country’s wealth tax, Neukomm said. “It often happens that the performance of the undisclosed portfolio was poor, so that the main tax due is wealth tax,” he said. “The top wealth tax rate is 1 percent in Geneva.” 

Banking Secrecy

While Swiss bank secrecy has been significantly eroded for nonresidents in recent years, it generally still applies to residents. “Swiss tax authorities cannot obtain information from Swiss banks on Swiss resident clients,” Neukomm said. “There are only [a] few exceptions to this in extreme cases duly authorized by the highest level of the Swiss government.” 

The major Swiss banks are no longer accepting residents' undeclared funds and are pushing their clients to prove they are compliant, Boitelle said. “Failure to prove tax compliance results in closing of accounts,” he said. “This is true at least for the major Swiss banks such as UBS, Credit Suisse, and Julius Baer, and it is my firm belief it will soon be the governing standard throughout the whole Swiss banking sector.” 

Boitelle said Switzerland’s traditional banking secrecy has been preserved for cases of simple tax evasion by Swiss residents, but not for cases of tax fraud. “Simple tax evasion could consist of simply forgetting to declare an item of income or an asset,” he said. “Tax fraud could, for example, arise in cases of [deceiving] the tax administration, such as [with] false documents or in case of systematic and durable tax evasion for significant amounts. In such cases, Swiss bank secrecy will be set aside . . . for Swiss tax residents.”

If a Swiss resident voluntarily discloses an inherited asset, any related tax liability applies only to the three most recent years, instead of the 10 years applicable to other assets. “If the undisclosed assets are deposited with a Swiss bank, elderly persons have . . . the option to ‘wait and see,’ unless the bank is pushing toward regularization because of their internal policies,” Neukomm said in an email. 

“We see more and more criminal tax proceedings being opened against Swiss tax evaders based on information exchange, but also based on denunciation . . . by a disgruntled employee, jealous neighbors, or cheated or divorced spouses,” Boitelle said. “Given that a voluntary disclosure generally ‘costs’ about only 10 [percent to] 20 percent of the previously undisclosed assets, I would never advise such a risky strategy, unless perhaps if my client was actually on his or her deathbed.” 

Neukomm disagreed with a comment made in the Neue Zürcher Zeitung article that the large number of residents disclosing unreported assets contradicts a widely held belief in Switzerland that the Swiss have been more honest about their offshore accounts than foreigners. “Very many Swiss families have undisclosed bank accounts for ‘rainy days,’” Neukomm said. "These accounts were often inherited from previous generations.”

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